If you are Foreign Investor, Limit your Chance of Getting Fleeced:
Avoid Getting Burned by “Hot” U.S. Stocks or Precious Metal Scams

Many foreign investors, for any number of reasons, including the stability of the U.S. government, its financial system and the regulatory scheme associated with its financial markets, seek to invest in U.S. stocks, precious metals or deposit their funds in U.S. Banks. As a foreign investor unfamiliar with these types of investing, it is of paramount importance that you thoroughly investigate any investment opportunity, including the deposit of your funds into U.S. Banks, and the person promoting it before you consider parting with your money. This is particularly important if you learn about the investment on the Internet or hear about it over the telephone from a broker and/or individual that you don’t know.

The recent globalization of world financial markets and the strength of U.S. banks and securities markets have fueled a strong demand by foreign investors for U.S. stocks and the deposit of funds into U.S. banks. But this increased appetite has, in turn, created new types of fraud. This post describes how some of these scams work, provides tips on how to avoid them, and tells you where to find help.

What some of these Frauds Look Like

Many of the new frauds target investors worldwide who purchase “microcap” stocks, the low-priced and thinly traded stocks issued by the smallest of U.S. companies. If the stock price falls, the fraudsters swoop in, falsely claiming that they can help investors recover their losses-for a substantial fee disguised as some type of tax, deposit, or refundable insurance bond. Here’s how some of the most common schemes work:

  • Aggressive Sales-Dishonest brokers purchase large blocks of stock from U.S. issuers at a deep discount. They then use high-pressure sales tactics to persuade non-U.S. investors to buy, often at extremely inflated prices. Once the brokers have finished selling the stock, the price typically collapses, leaving investors vulnerable to substantial losses.
  • Absentee Brokers-For many investors, the scam ends here. When they attempt to contact the individuals who sold the worthless stock, the investors discover that the brokers have disappeared.
  • Advanced Fee Schemes-For other investors, the fraud takes on a new twist. Fraudsters posing as legitimate U.S. brokers or firms offer to help the investors recover their losses by exchanging the worthless stock for an established, blue chip stock or by purchasing the stock outright. But investors must first pay an upfront “security deposit” or post an “insurance” or “performance bond.”
  • Further Demands for Money-As long as an investor appears willing to make payments, the fraudsters will keep asking for more-falsely claiming that the payments will cover additional fees, taxes, bonds for the courier service, or other similar expenses.

How to Avoid Getting Burned

The best way to protect against investment fraud is to ask tough questions about the opportunity and the people promoting it-before you invest. For example, you’ll want to know:

  • Are the Broker and the Firm Licensed? Contact your securities regulator to find out. The International Organization of Securities Commissioners (IOSCO) provides contact information for most securities regulators on its website. Be sure to ask whether the broker or the firm has a history of complaints. If the person claims to work with a U.S. brokerage firm, visit the Financial Industry Regulatory Authority’s (FINRA) website to verify this information. If the person claims to work with a U.S. commodities firm, visit the website of the Commodities Futures Trading Commission or the website of the National Futures Association. Please note that it is not necessary for precious metal dealers to be register in the U.S. For more information relative to precious metals fraud go to FAQ’s Relative to Precious Metals Fraud. However, you cannot even take this information at face value because the caller might have stolen the name of someone that is registered with a legitimate brokerage firm. The next step in the process would be to directly call the firm referenced on the FINRA site and ask for the representative.
  • Is the Investment Registered with SEC? Check the SEC’s EDGAR database to find out. But always remember the fact that a company has registered its securities or has filed reports with the SEC doesn’t guarantee that the company will be a good investment. Likewise, the fact that a company hasn’t registered and doesn’t file reports with the SEC doesn’t mean the company is a fraud.
  • Where Does the Stock Trade? Many frauds involve microcap companies whose stocks are quoted in the “pink sheets” or on the OTC Bulletin Board. These companies generally do not meet the minimum listing requirements for trading on a national exchange, such as the New York Stock Exchange or the Nasdaq Stock Market. And companies quoted in the pink sheets generally do not file reports or audited financial statements with theSEC. It can be very difficult for investors to find reliable, unbiased information about microcap companies. For that reason, microcap stocks can be among the most risky investments.
  • What Is the Stock Price in the U.S.? Before you purchase any U.S. stock, be sure to independently confirm its current U.S. trading price. Dishonest brokers may charge you a much higher price, assuming that you’ll never check. The Nasdaq’s website-at quotes.nasdaq.com-features current quotes for stocks listed on the New York Stock Exchange, American Stock Exchange, and the Nasdaq Stock Market and for stocks quoted on the OTC Bulletin Board.
  • How Can I Independently Research This Opportunity? Always ask to see-and carefully read-written information about the company, including a prospectus and recent financial statements. But also research the company on your own..

These additional tips can help you avoid unscrupulous brokers:

  • Look Past the Name-Some fraudsters illicitly use the names of legitimate brokers and brokerage firms. Be sure to compare any address a broker gives you with the address you obtain from your securities regulator or FINRA. If they are not the same, you may be dealing with a fraudster.
  • Independently Verify References-Never rely solely on the references given to you by a broker you’ve never worked with before. The “satisfied clients” or “international organizations” they suggest you contact may well be part of the scam.
  • Be Wary of Unusual Banking Instructions-Most reputable brokerage firms in the U.S. use U.S. banks and would not, for example, ask you to transfer money to a U.S. bank for further credit to a non-U.S. bank.

Note: If you do decide to do business with a “cold” caller, make sure that you keep all contact information, documents that you receive and information concerning the transfer of funds, including wire instructions. This may be the only way to track them.

If you come to the conclusion that you were defrauded, it is important to take immediate action. If there is any money to be recovered, it is usually the individuals that act first that have the best chance of getting some or all of their money back.

Contact Us

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Centeral Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.